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What differences are there between CFD trading and Forex trading?

Cedric M


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Hello Cedric,

Despite the many similarities that exist between CFD and Forex trading, these two vary in various ways. A contract for difference is a consensus between two parties to exchange the difference in the opening and closing price of an essential asset without necessarily owning the asset. 
In CFD, you speculate if an asset's price will rise or fall and, therefore, decide whether you want to buy or sell the asset.
Forex trading involves exchanging different currencies in the decentralized foreign exchange market.
Trading CFD is more flexible since the market offers a variety of financial instruments to trade with.
What determines the price in both markets is also a vital difference between these markets. In CFDs, the market price depends on the availability and demand of the essential tool being traded. In the Forex market, however, the currencies' costs may vary depending on the economic measures, amongst other factors.
The Forex market operates for 24 hours each day for almost the whole week. You therefore, can trade at any time you want. The CFD market, however, trades depending on the underlying market.
The spread is the main market cost incurred in both markets. However, in CFD, you can incur other costs depending on the conditions of the essential asset being traded. In CFD, you may incur overnight costs for holding a position overnight. Your transaction costs may also incur commission fees.
The contract size in CFD is steady. In CFD, the contract size varies depending on the tool you are trading.
When choosing the market to trade in, the guiding element is your goals, what you prefer, and the risk diversification. You can decide to trade both if you have enough knowledge and how to deal with both fields.

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